Pushing Netbooks, Intel's Still Innovating

SANTA CLARA, Calif. ( TheStreet) -- From orchestrating layoffs to sniffing new netbook ventures, Intel ( INTC) CEO Paul Otellini has faced a slew of challenges since stepping into the company's hot seat five years ago, but is credited with guiding his company through one of the most turbulent eras in U.S. economic history. He has also dragged Intel back to its technology roots while bolstering its reputation for innovation.

In May 2005, when Otellini took over from Craig Barrett as CEO, the world was blissfully unaware of the ticking sub-prime mortgage time bomb. A 31-year Intel veteran when he was promoted to CEO, Otellini took over at a crucial time for the no.1 chipmaker.
Intel CEO Paul Otellini guides Intel with bright ideas.

"I think he has done a very good job in terms of taking the company from a period when it was clearly underperforming to one where it has a much stronger competitive position, said Nathan Brookwood, research fellow at consulting and market research firm Insight 64.

In the years prior to Otellini's appointment as CEO, Intel had diversified into new areas such as telecom components, a strategy which left the firm searching for direction and also opened the door for AMD ( AMD).

"Whenever Intel strays from its x86 roots, it tends to have lots of problems -- it kind of drifts," said Brookwood. "When it does things that are close to its roots, it does much better."

Back in 2004, Intel was unsure how to tackle arch-rival AMD's Opteron chip, a popular x86 chip for servers and workstations that helped the much-smaller firm carve a presence in the data center. AMD's success and innovation was clearly a thorn in Intel's side, says Charles King, president of analyst firm Pund-IT.

" Before Otellini there was a sense that if they ignored it long enough, Opteron would flame out," said King. Under Otellini, Intel has thrown resources at its own Xeon chips, boosting its technology story. Last week the chipmaker even unveiled its first 32-nanometer chips, and has promised to roll the technology out to Xeon server chips over the next three months. In contrast, AMD will play catch-up -- it's not expected to implement 32-nanometer until sometime next year.

Intel, which blew past analysts' estimates in its fourth-quarter results last week, has also been quick to jump on new technology trends.

Otellini, for example, was one of the prescient ones when it came to seeing the importance of scaled-down laptops, and the CEO has been on a mission to sell Intel's Atom chips to the netbook sector.

"The whole Atom strategy is, I think, a way for Intel to expand the markets it serves while sticking with its x86 knitting," explained Insight 64's Brookwood. Otellini, he added, has done an "excellent job" of focusing Intel on areas where it can be successful. This includes new markets like cash registers and ATMs, which use low-power chips.

During the company's fourth-quarter conference call, the Intel CEO explained that the latest version of Atom, dubbed Pine Trail, is now powering more than 80 netbook models.

The company has also refocused its efforts around graphics chips, where it faces a stiff challenge from the likes of Nvidia ( NVDA) and AMD's ATI division.

Otellini's tenure hasn't been all easy sailing, though. Last year, Intel raised eyebrows when it scrapped plans to launch a hyped-up standalone graphics chip, and has instead built new graphics capabilities into its latest family of Core processors.

In 2006 the CEO also embarked on the largest round of layoffs in the company's history, cutting around 10% of Intel's workforce in an attempt to combat slowing PC demand and competition from AMD.

So the song goes, "You got to know when to hold 'em, know when to fold 'em" -- a mantra which could equally apply to Otellini's business philosophy.

While Intel's restructuring ensured that the firm entered the economic downturn as a much leaner operation, Otellini has had to make other tough decisions, most notably in the company's long-running antitrust and patent disputes with AMD.

"The ability to cut your losses before they become really bad is a good talent in a CEO," said Pund-IT's King, pointing to Otellini's decision to settle with AMD last year. "He realized that the company would be better off paying $1.25 billion rather than years of court costs."

Intel, of course, has other legal distractions on its plate, not least accusations of monopolist activity. Shortly after settling with AMD, the chip giant was hit with antitrust charges by the FTC, increasing the regulatory pressure on the firm, which is also fighting antitrust battles in Europe and South Korea.

Ultimately, though, Otellini's supporters praise his performance as CEO. The 59-year old has even been compared to his recession-busting IBM ( IBM) counterpart, IBM chief Sam Palmisano, who is admired for shifting his company's focus from low-margin hardware to more profitable areas like software and services.

For Intel, there is still plenty of work to do, but the company is heading in the right direction. "I think that to date, Intel has performed pretty well on his watch," said Pund-IT's King. "I think that his performance as a CEO is analogous to Palmisano at IBM -- Otellini deserves a round of applause for keeping Intel on the straight and narrow."

-- Reported by James Rogers in New York

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